Newcomers lock in markets

The changing face of the international iron ore game is probably best exemplified by the current rapid development of Australia’s second largest iron ore region in Western Australia’s Mid-West region.

A crop of new developers emerging in the region has moved quickly to stitch up long-term supply deals with major Chinese and South Korean steelmakers and trading houses anxious to secure their future supply lines.

In a sellers’ market, these new Mid-West producers are looking to align their production profiles with their customers’ long-term requirements – to underwrite their production by locking in long-term supply deals and, importantly, sharing the development pain from the outset.

It is an approach exemplified by Midwest Corporation’s recent joint venture with Sinosteel, a $4 billion-plus a year turnover company, the second largest Chinese iron ore distributor and that country’s largest distributor of other raw materials.

An important element to this deal is that Sinosteel is part of a consortium that includes the giant China Development Bank and the Import and Export Bank, which have provided Sinosteel with a $3 billion war chest with which to fund future investments.

Midwest has about $1.8 billion worth of projects on its plate, including its big 15 million tonnes to 20mt/year Weld Range project, to be kicked off by reopening the Koolanooka and Blue Hills mines, about 200 kilometres east of Geraldton near Morawa, at a modest 1mt/year.

The first shipment of stockpiled fines is expected this month or early January, with the first two years of production having already been sold. The project is expected to generate cash flow of $100 million over seven years.

The second phase is for the $1 billion development of the Koolanooka magnetite iron ore deposit, 160km south-east of Geraldton, expected to produce 4.5mt/year of concentrate and/or pellets from 2010-2012.

Midwest also plans an $800 million, 15mt to 20mt/year iron ore mine at Weld Range, 65km south-west of Meekatharra, with a pre-feasibility study to be completed mid 2006 and project start-up scheduled for 2010.

The initial plan calls for a 350km rail line to a new deepwater port facility at Oakajee, 25km north of Geraldton, and a mine life of more than 15 years.

The joint venture with Sinosteel involves project studies on the second stage of the Koolanooka magnetite project, Weld Range and then to jointly develop them with Midwest.

To achieve its 50 per cent of Weld Range, Sinosteel has to match Midwest’s $16.3 million development costs to date and match future expenditure dollar for dollar. At the conclusion of the pre-feasibility study, the project will be independently valued and Sinosteel will invest half that amount into the Weld Range project, effectively funding the project’s development and construction.

Sinosteel is also obliged to take 50 per cent of the product over the life of the mine and has an option to take the rest.

“Sinosteel will be funding the development of the project forward after matching the dollars already spent, so Midwest can sit back and not worry about funding for at least 12 months,” Midwest executive director Jyn Sim Baker said.

Another player with a strong partner is Mt Gibson Iron.

The company has a three-stage plan targeting annual sales worth more than $1 billion by the end of the decade, funded by current 2mt annual production from its Tallering Peak mine, 170km north-east of Geraldton, rising to a consistent 3mt in the middle of next year. The mine has a life out to 2011 on current reserves.

The second stage involves the $620 million development of the minimum 5mt/year Extension Hill mine, 330km south-east of Geraldton, in a 50/50 joint venture with the Beijing-based Shougang Group, China’s fourth largest steelmaker.

The 250mt reserve mine has a life of more than 20 years and the partners plan to double production to 10mt/year from 2009-10.

Recently appointed Mt Gibson managing director Luke Tonkin, previously CEO of Sons of Gwalia, estimates commissioning Extension Hill around late 2007, before which the company will mine surface hematite in its own right at the rate of 1.5mt/year.

The project includes a 290km underground slurry pipeline to Geraldton port and the further construction of a dedicated berth-7 at Geraldton port. Extension Hill is just one of eight advanced iron ore prospect the company has in the Mt Gibson area.

Mr Tonkin said the 5mt annual production would be split between Shougang and a new 2.5mt/year joint venture pellet plant to be built at the port of Longtan on the Yangtze River in China. The resultant product will be sold to regional steel mills under contracts with Shougang.

The third phase of Mt Gibson’s five-year plan is the construction of Australia’s first MIDREX ITmk 3 iron nugget plant between Dongara and nearby Mingenew, planned to be in production in 2008.

The plant, expected to produce 96 per cent pure nuggets, will consist of four 500,000t/year modules, powered by coal from the company’s nearby Irwin River reserves.

While Mr Tonkin says Mt Gibson is “doing it all on the smell of an oily rag”, the company has the reserves, a strong Chinese partner, no debt and $50 million in the bank.

Murchison Metals has already sold nearly all its first year production for $95 million before shipping the first ore from its $1.3 billion Jack Hills project, 380km north-east of Geraldton, in June next year.

The company’s 5.5 per cent stakeholder, South Korean POSCO, the third largest steel producer in the world with the right to go to 19.9 per cent, also has the option to take up to 10mt/year from the company’s second stage development at Jack Hills.

The $26 million first stage involves a five-year mine plan, with initial production of 1.2mt/year, increasing to 1.5mt in 2007 from the 67mt resource, with mining beginning in the first quarter of next year.

Stage two involves increasing production up to 25mt/year over 20 years to be railed to a new port facility, probably Oakajee, with construction tentatively scheduled for 2008.

Murchison director Paul Kopejtka said work on the $20 million second stage bankable feasibility study would begin in the first half of next year.

Stage one development costs of $40 million will be funded from current cash resources, the recent placement to POSCO and project debt finance, for which negotiations with four major banking institutions are under way.

Murchison managing director Robert Vagnoni said the company’s long-term future lay with its 300mt to 400mt of resources at Weld Range, 100km south of Jack Hills.

Gindalbie Metals expects to begin direct shipping 1.5mt/year of ore from its $720 million Blue Hills project, 220km east-south-east of Geraldton, in early 2007.

Production is expected to rise to 4mt/year by 2009, the same year as production is expected from the company’s 4mt/year iron pellet plant, drawing on Gindalbie’s Mt Karara mine in the Blue Hills North Project.

The 400mt deposit is expected to support a minimum 20-year mine life and has potential for production to grow to 7mt/year.

Plans include a 200-250km slurry pipeline to Narngulu, near Geraldton.

Just out of the Mid-West region, Portman is lifting production from its Koolyanobbing operation, north of Southern Cross, from 5mt to 8mt a year, primarily from its northern tenement resources at Windarling and Mt Jackson. 

The $75 million expansion is expected to be completed by the first quarter of next year and takes Koolyanobbing’s mine life out to another 11.5 years.